In the earlier blogs, I have shared my journey of moving to a new city for job, getting a house and managing adult life struggles with help of personal loans. Just recently, when I needed to buy a bike, I went into research mode, and compared three bikes based on a few important features.

Although a bit of stretch on my budget, I finally decided to buy the best bike in a mid-budget category – Hero Glamour. To make the purchase easier on my pocket and manage other regular expenses without stress, I turned to my trustworthy online loan app – PaySense – once again. By now, I had a fair understanding of how online loans and online loan applications work. They had made my life so much easier ever since I started living on my own. I wasn’t cutting back on any of the necessities, and yet I learnt how to spend money wisely and smartly to afford everything that I wanted to. Contrary to what my parents believed and feared, I was also building up my credit score gradually for bigger loans in future. In all senses, personal loans made me more responsible and mature about money matters.

Given my prior loan experience, I had also became wiser about having to choose loan tenure for any given loan. Often, people want the shortest duration of loan plan available to them, so that they can pay back as soon as possible at lowest interest amounts and be debt-free. However, it doesn’t help since the EMI becomes too much to pay comfortably and people tend to compromise, even on the basic needs just because of the high EMIs. On the contrary, when people choose a longer duration, they have to pay a huge interest amount. Also, since life is unpredictable, the chances of defaulting and damaging your CIBIL score increases with a long loan tenure. Having to choose loan tenure that is perfect for you becomes a bit tricky though I got help from this video – 

A few factors that helped me choose loan tenure in a smart well-informed manner included –

My current lifestyle and responsibilities

Most of our monthly expenses like rent, fuel, groceries, maid, credit card bills, and utility bills for electricity, internet, etc.are already fixed. Similarly, depending on our lifestyle, we can keep a certain amount for our entertainment and leisure, through movies, dinners, outdoor activities, and more. Having a rough idea of this amount helped me decide what EMI amount I would be able to pay without stretching much, and hence the loan tenure I should select.

Predicting the Future

I know, I know I just said that life is unpredictable. However, you can predict a near future event like a promotion or an increment, or a major event in the family. These again impact the ease of paying EMIs on time. Nobody would want to default on an EMI, anyway.

Considering the interest charges

Most of the banks and NBFCs offer a flat rate of interest, and the EMI amount decreases with a longer tenure. However, the total interest payout amount keeps increasing along with the number of months in which you pay back your loan. For instance, for a loan of Rs. 65,000 in loan at 18% interest rate, this is how much I would have paid each month based on the loan tenure –

Loan Tenure EMI (in INR) Total Interest Amount (in INR) Total Amount Payable (in INR)
6 months 11,409 3,455 68,455
9 months 7,775 4,972 69,972
12 months 5,959 6,510 71,510

Choosing the right balance between an affordable EMI and the total interest amount is the key to selecting the right tenure for your personal tenure. In fact, you can also choose loan tenure based on this calculation alone. 

To fund my bike, I chose the loan tenure of 9 months as it gave me the perfect balance of economical EMIs and best interest amount payable.